For all the brouhaha generated in the past few weeks and an assurance to Minnesota Gov. Jesse Ventura, market observers think Federated Department Stores Inc. may prefer to liquidate Fingerhut Cos. rather than sell it.

Nearly half of Fingerhut's 6,000 employees have been placed on paid leave as per a 60-day federal plant-closing law, and the company mailed what it has said could be its swan song book.

Also, Federated has not given a cut-off date for final offers from suitors. At least four potential buyers have surfaced since the Cincinnati retailer announced its intention Jan. 16 to jettison Fingerhut. Credit Suisse First Boston is handling sales negotiations.

So what's the fun in buying an operation that is not ongoing?

"That's going to hurt a buyer coming in, obviously, to get the next book out, to bring back the employees," said Jim Adams, managing director of Tully & Holland Inc., Wellesley Hills, MA, an investment bank that deals in direct marketing businesses. "It's really going counter to selling the business."

But Federated, which paid $1.7 billion for Fingerhut in 1999, is confident it is on the right course.

"What we're saying is it could be the last catalog, but we're not going to go publish a lot of catalogs when the future of our business is uncertain," Fingerhut spokesman Ben Saukko said. "We have to start the process of the wind-down under the assumption that we're going to liquidate the company. If we get a buyer, that's great news."

However, there remains the issue of a break in the catalog cycle or a season missed. Last holiday already was a washout for Fingerhut. Sales dropped 20 percent in December to $209 million, from $260 million in December 2000. A break in operations could only exacerbate Fingerhut's slide into the red.

On the flip side, a stripped-down Fingerhut might be more attractive to buyers.

"It could bring out a lot more bottom fishers who think it's really going to work in their favor," said Adams, a DM veteran who spent nine years at Millard Group Inc., Peterborough, NH. "But at some point, a buyer's going to say, 'You've passed the deadline; you can't get the next catalog out; you've lost your people; you've lost time; you've lost credibility and your vendors.' That's always a problem."

Fingerhut says it can resume operations.

"If we find a viable buyer, we can easily fall back into our daily routine," Saukko said, though he would not elaborate. "This is just the initial process of winding down the business, and nothing we've done is irreversible."

Federated is more confident that it can sell Fingerhut's subsidiaries: Arizona Mail Order, Bedford Fair Apparel, Lew Magram and Brownstone, Figis and Popular Club.

"Federated is ... more optimistic they'll be able to find a buyer for those subsidiaries," Saukko said. "They haven't set any timelines, but the subsidiaries are for sale."

Still, some say Federated realizes it may be unable to recoup its initial investment in the 54-year-old business. Hence, liquidation of the book and its e-commerce business is a more attractive option. At least that is the theory propounded by the Union of Needletrades, Industrial and Textile Employees, which represents 700 St. Cloud, MN, Fingerhut workers.

The New York-based union distributed 2,000 leaflets last week in St. Cloud, citing the tax benefits Federated could garner by liquidating Fingerhut. The leaflet reads, "We aren't just tax write-offs. We're real people with families." The union intends to take "national actions" against Federated's other retail chains like Bloomingdale's, Macy's and Rich's.

Maxwell Sroge, president of the Maxwell Sroge Company Inc. catalog consultancy in Evanston, IL, suspects liquidating Fingerhut would yield more than selling. Fingerhut's assets include unsold merchandise, plants and buildings, accounts receivable, the database and goodwill for the name.

"They paid $1.7 billion to buy the business originally," Sroge said. "If somebody would offer them more than $400 million to $500 million, that's less than a third of what they paid. I think that what they have in mind is a value to their business in terms of a tax write-off that probably exceeds any reasonable offer they can expect to get."

Adams said he thinks Federated must have already spent considerable time trying to get rid of Fingerhut. This is just a last-ditch attempt to realize value out of the brand.

"There just comes a point where they're just well-off maybe liquidating as opposed to selling it and having to wait for due diligence and risk another two months of operating expenditures and losses," he said.

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